Okay, so maybe, just maybe, I still pay some attention to what's going on in the world. I mean, I do listen to NPR while I'm in the shower and performing my morning ablutions.
And then again while I'm having tea and croissants on china. Mmmmm...a civilized breakfast instead of a bacon biscuit behind the wheel of the car......
So where was I? Oh, yes. Paying attention. Truth is, I still do and boy oh boy thinking about the mighty mess we're in as a nation can send me groping madly for the old fermented grape juice. I would never claim to be the deepest of thinkers, but when forced to consider this or that, I find it necessary to try to find some explanation and then my mind immediately starts imagining solutions. It's like silent brainstorming.
For example, yesterday as I got ready for work, NPR had a story about home foreclosures. Our family just moved on April 1st after MathMan and I made the difficult decision to let Citibank foreclose on our house. We were almost $60k underwater on our mortgage and we knew a move closer to town was necessary before we could ever be able to sell the house in the middle of nowhere. When we contacted Citi to see about renegotiating our mortgage, it became apparent that they were either not interested or able to work with us and so, after many calls and much wasted time, we concluded that the only thing to do was walk away.
After listening to the story on NPR, I think one solution to this problem would be to forbid the large national banks from issuing mortgages. If we were forced to deal with local banks for our loan needs, rather than being steered by mortgage brokers into those hokey big bank loans in the first place, perhaps this mess wouldn't have happened. And I mean that on the micro and the macro level.
When we first contacted Citi about working with us, one of the things we were told was that Citi couldn't work with us because our mortgage wasn't just one single thing on the holder's end. Several entities had pieces of our loan and so to renegotiate would be next to impossible because there were too many stakeholders involved.
It occurs to me that had we been working with a local bank, this kind of thing would be less likely to happen. Local banks are much more integrated into the community. It would be harder for them, I suspect, to avoid dealing with their customers. You've also got word of mouth and local ties to consider. Maybe keeping loans local would be the best way to avoid this kind of problem in the future.
Local banks would still have to be monitored and regulated to make certain that all ethnic groups are being treated fairly, for example, but this is not insurmountable. And letting large national banks do business across state lines hasn't been a full-proof method for eliminating redlining and other unfair loan practices.
The second piece of this mess has been the credit default swap fiasco. The system is so hokey and ridiculous, I can only think that the theives who invented it must have thought they'd become completely invincible after they realized that it was working for them and they were able to rake in huge piles of cash. No one caught on? They were getting away with it? Imagine the conversations they must have had as they swanned about posh settings, acting the peacock for each other with audacious displays of wealth. As BAC writes, there's plenty of blame to be laid at the bankers' and brokers' expensively-shod feet.
The way I understand it, we'd arrived at a place where a large part of the financial game was based on people making their money up front and early, very much like a Ponzi scheme. I'm not an investor and I don't mean to suggest that I understand how the system works, but common sense should tell you that a system based on people collecting huge amounts of money at the front end of their investment would be an incentive for corruption and would also take away from the system that provides its largest payoffs at the back end. Long-term investment would suffer.
It's no so different from parenting. If I tell my kids that they can have some reward after they've completed some task or chore, then they are more likely to complete said task or chore. If I let them have the reward up front, they're much less likely to follow through, or, if they do, they're very likely to do a half-assed job at best.
From the looks of this economic crisis, we are exactly right where I would be if I told my kids that they can have the new cellphone now, but I expect them to clean up the family room later.
Like those preening uber-rich bankers showing off their big-ticket items to their pals, my kids would be fervently texting away to all their friends about their new phone while I stand hip deep in an ocean of dirty clothes, discarded bits of food, the occasional forgotten plate, crumpled candy wrappers, a blizzard of paper bits, the random loose battery, mismatched shoes, a broken off piece of plastic from something I can't quite identify, a bookbag with its guts spilling out, smelly socks stuffed under sofa cushions, someone's half-eaten bagel, and dozens and dozens of open dvd boxes scattered around the room.
Except our financial mess is much, much bigger than that. And it smells much, much worse, too.